Canada Offer's Mortgage Insurance, Must You Bite?

The Canadian housing finance system has made it possible for you to buy a property in Canada even if you are not able to save enough for the down payment. Better yet, it allows buyers to buy a mortgage with a 5% down payment, but will be able to get an interest rate as if you made a 20% down payment.

How is this possible? It is possible to get such a great deal because they require the purchase of mortgage insurance for the amount borrowed. Risk of the loan defaulting is reduced for the lender and the buyer is able to buy a property without making the entire down payment.

What are the Requirements?

To get mortgage insurance, there are requirements to qualify, so some purchasers will not be able to get it.

The first requirement is the property needs to be in Canada. For single-family and two-unit homes, you must have a down payment of at least 5%, and at least 10% on three- or four-unit dwellings. The money down needs to come from your own resources, but it is acceptable for an immediate relative to contribution you the money.

Also, the total monthly housing costs that include principle, interest, property taxes, heat, the annual site lease in case of household tenure, and 50% of applicable condominium fees should not represent more than 32% of your gross household income.

An additional qualifier for mortgage insurance is your liability load should not be more than 40% of your gross household income.

The amount of closing costs and fees can also play a part in deciding your eligibility for mortgage insurance.

How much does it cost?

The lender pays for the mortgage insurance by paying the insurance premiums. Yes, the lender is the one who pays the premium, but believe me; they will pass the expense on to you.

Does mortgage insurance cost a lot? Well, the answer varies. The amount of the mortgage is directly correlated with the price of the insurance. Your insurance costs higher the more money you are lended. So, for buyers who set aside more will be rewarded more.

You can even pay the insurance premium in diverse ways. The insurance premiums can be paid monthly as a part of the buyers mortgage payments or up front in a large lump sum.

Purchasing mortgage insurance does not mean you are safe if you default on a loan. Insurance for the borrowed amount reduces risk for the lender. On the bright side, you got to buy a property with little money down and a good interest rate.

Visit www.infoprimes.com to see how you can save on mortgage insurance rates.

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